Midterm 4

Question 1

Gross Domestic Product

Answer 1

Market value of the final goods and services produced in the economy during a given time period

Question 2

How do you determine the economies state

Answer 2

Comparing GDPs from over the years

Question 3

What are the two ways to measure GDP

Answer 3

Expenditure approach
Income approach

Question 4

What is Expenditure approach

Answer 4

expenditure approach measures the value of GDP by adding all expenditures to produce final goods and services

Question 5

What are all the expenditures that needs to be added to find GDP under Expenditure approach

Answer 5

Consumption approach
Investment expenditures
Government Expenditures
Foreign Expenditures

Question 6

Consumption Expenditures

Answer 6

Includes all expenditures made by household, endurable and non durable goods as well as services

Question 6

Investment Expenditures

Answer 6

Investment in capital and Equipment
Investment in all construction
Investment in inventories

Question 7

Gross Net Investment =?

Answer 7

Gross Investment - Depreciation

Question 8

If In > 0 then?

Answer 8

The economy is expanding

Question 9

If In < 0 then?

Answer 9

Declining Economy

Question 10

If In = 0 then?

Answer 10

The economy is static

Question 11

Government Expenditures

Answer 11

Building highways, parks, hospitals and payments for the services of labor

Question 12

Foreign Expenditures

Answer 12

Net Exports (Xn) = Exports - Imports

Question 13

Are stock and bond investments included in GDP

Answer 13

No

Question 14

Income Approach in Measuring GDP +?

Answer 14

Wages + Net Income of farm and other unincorporated businesses including rent + Interest and Investment Interest + Profits

Question 15

What are wages?

Answer 15

Payments by firms and private businesses as well as government for services of labor

Question 16

Interests are what

Answer 16

Payments on capital and mortgages

Question 17

Investment Income is what?

Answer 17

Money received that Canadians do abroad

Question 18

What are the three types of profits

Answer 18

Distributed Profits
Business taxes
Undistributed Profits

Question 19

NDP =?

Answer 19

Net Domestic Income + (Indirect Business Taxes - Subsides)

Question 20

Real GDP is what

Answer 20

Nominal GDP that has been adjusted for inflation

Question 21

Real GDP in a given year = ?

Answer 21

Nominal GDP in a given year / GDP price index in base year x 100

Question 22

GDP price index in a given year = ?

Answer 22

Price of the Market basket in a given year / Price of the same Market basket in base year x 100

Question 23

What isn’t included in GDP

Answer 23

Non marketed activities
Underground economy
Transfer Payments
Second hand sales

Question 24

What happens in a Trough

Answer 24

High rate of unemployment Low rate of economic growth Weak confidence A lot of unused capacity Low demand in the economy Low income

Question 25

What is the only way to get out of a trough

Answer 25

The government must get involved along with the central bank

Question 25

What happens during a recovery

Answer 25

Employment goes up Economic growth will go up Gradually confidence in the economy will be restored Excess capacity will gradually disappear Income will go up Total demand will go up

Question 26

What happens during a economic peak

Answer 26

Could be combined with inflation Usually shortage of raw material Skilled labor in key industry's

Question 26

What happens during a recession

Answer 26

Downturn in economic activities Needs to last tow quarters to be considered recession Recessions need government involvement

Question 27

How are capital goods affected by economic shifts

Answer 27

They are affected are affected significantly because demand for those goods can be halted

Question 28

How are non durable goods affected by economic shifts

Answer 28

They are not impacted significantly because demand for them are not able to be halted

Question 29

What is unemployment

Answer 29

The unemployed are people over the age 15 actively looking for a job and can't find one

Question 30

How is unemployment rate determined

Answer 30

Statistic Canada does a random survey of about 60,000 households in Canada

Question 31

Unemployment rate = ?

Answer 31

number of employed / labor force x 100

Question 32

What is the labor force

Answer 32

employed + unemployed

Question 33

What are the three types of unemployment

Answer 33

Frictional unemployment Structural Unemployment Cyclical Unemployment

Question 34

What is Frictional Unemployment

Answer 34

People who are in between jobs or are looking for a new job (seasonal workers)

Question 35

What is Structural Unemployment

Answer 35

Unemployment due to the changes of structure in the economy

Question 36

What is Cyclical unemployment

Answer 36

Happens as a result of changes in the cycle of the economy

Question 37

What is the percentage of employment that is needed for it to be considered full employment

Answer 37

93-94%

Question 38

What are the costs of Unemployment

Answer 38

Economic Cost (GDP Gap) Social Cost

Question 39

What is GDP Gap

Answer 39

Difference between potential and actual GDP

Question 40

What is Potential GDP

Answer 40

Total output that could potentially be produced if all resources were fully employed

Question 41

What are the two types if Inflation

Answer 41

Demand Pull Inflation Cost Push Inflation

Question 42

Demand Pull Inflation

Answer 42

Increase in General Price level because of excessive total demand

Question 43

Cost Push Inflation

Answer 43

Increase in cost of production which pushes prices up

Question 44

What is the equation for Inflation rate in a given year

Answer 44

CPI in a given year - CPI in base year / CPI in base year x 100

Question 45

What is the Redistributive effect of Inflation

Answer 45

% ^ in real income = % ^ in nominal Income - rate of inflation

Question 46

Aggregate Expenditure = ?

Answer 46

C + I + G + Xn

Question 47

If Disposable Income goes up what happens to consumption

Answer 47

Consumption goes up

Question 48

Look at Consumption schedule graphs

Answer 48

Look at Consumption schedule graphs

Question 49

What is APC

Answer 49

Average Propensity to Consume

Question 50

What is APS

Answer 50

Average Propensity to Save

Question 51

APS = ?

Answer 51

S / Y

Question 52

MPC = ?

Answer 52

^C / ^Y

Question 53

MPS = ?

Answer 53

^S / ^Y

Question 54

What are some non income determinants of (C) and (S)

Answer 54

change in wealth expectations income tax interest rates

Question 55

Real Rate of Interest = ?

Answer 55

Nominal interest rate - Rate of inflation

Question 56

Look at Investment Schedules

Answer 56

Look at Investment Schedules

Question 57

Look at Expenditure - output approach schedules

Answer 57

Look at Expenditure - output approach schedules

Question 58

Look at Leakage - Injection approach schedules

Answer 58

Look at Leakage - Injection approach schedules

Question 59

What is Multiplier Effect

Answer 59

When a initial injection leads to more than porportion change in income and employment

Question 60

Multiplier = ?

Answer 60

1 / 1- MPC or 1 / MPS or ^Y / ^ in Spending